By Benadeta Mwaura - Reporter
Kenya, June 20, 2026 - Developing countries are losing an estimated $500 billion (about KSh64.5 trillion) every year due to higher borrowing costs compared to advanced economies, according to a new report by the United Nations Conference on Trade and Development (UNCTAD).
The report warns that rising debt-servicing costs are squeezing public finances across the developing world, leaving governments with less money to invest in critical sectors such as healthcare, education, infrastructure, and climate resilience.
According to UNCTAD, 94 developing countries could collectively save around $500 billion annually if they were able to borrow at the same interest rates as developed economies.
"Developing countries continue to pay significantly more for external financing than developed economies," the agency said, noting that the high cost of debt is undermining efforts to achieve sustainable development goals.
UNCTAD's findings show that debt servicing costs are growing faster than government revenues in many low- and middle-income countries. In 2024 alone, developing economies paid $384 billion in interest on external debt, while government interest payments have increased by 102% over the past decade, outstripping the 39% growth in public revenues during the same period.
The report found that between 2018 and 2024, 99 developing countries, home to 5.5 billion people, experienced shrinking fiscal space as a result of rising interest payments. As governments allocate larger portions of their budgets to debt repayments, spending on essential public services and development programmes is increasingly constrained.
"Rising debt-servicing costs are putting increasing pressure on public finances," UNCTAD said. "As more public resources are directed towards debt service, governments have less room to invest in education, healthcare, infrastructure, and other development priorities."
The agency estimates that developing countries require an additional $4.3 trillion annually to achieve the United Nations Sustainable Development Goals. However, access to affordable financing remains limited, with new external funding accounting for only 11% of total investment in developing economies in 2024, compared to 38% in advanced economies.
More from Kenya
UNCTAD said addressing the financing gap will require both domestic reforms and changes to the global financial system. The agency called for stronger debt management frameworks, expanded access to concessional financing through multilateral development banks, improved debt restructuring mechanisms, and reforms to the international financial architecture.
The warning comes amid mounting concerns over rising debt levels across emerging and developing economies. According to UNCTAD's latest estimates, total external debt in developing countries reached $11.7 trillion in 2024, while debt-servicing obligations climbed to approximately $1.6 trillion, diverting resources away from development priorities.
Global public debt reached a record $102 trillion in 2024, with developing countries accounting for nearly one-third of the total at $31 trillion. The issue has increasingly drawn international attention, with leaders of the Group of Seven recently pledging to intensify efforts to address rising debt vulnerabilities among developing and middle-income countries.
UNCTAD said reducing borrowing costs is no longer simply a financial issue but a development imperative.
"The message is straightforward: when financing is insufficient and too expensive, development becomes harder," the agency said. "Expanding access to affordable, stable, and long-term finance is therefore not only a financial issue, but a development imperative."
For African economies, the report highlights the importance of diversifying funding sources, strengthening domestic revenue mobilisation, and improving debt management strategies to reduce exposure to expensive commercial borrowing.
The findings also reinforce growing calls for reforms to global lending systems to provide developing countries with more equitable access to affordable finance, particularly as governments face increasing spending pressures linked to climate change, population growth, and infrastructure needs.